Exam 4: Wealth and Income

Correct Answer:

Verified

(1) The Nearly Propertyless Class. About 40% of households, with net worth under $50,000 in 2016. The majority have a negative net worth, and few are worth more than $10,000. Most have automobiles and many own their homes. But the nearly propertyless class is a debt-ridden class: What they owe is quite high relative to the value of their assets. Younger families and most African American and Hispanic households fall into this wealth class. This class was especially hard hit by the Great Recession of 2008-2009.
(2) The Nest-Egg Class. About 50% of households, with net worth ranging from $50,000 to around $1.5 million in 2016. The families in the nest-egg class might be described as savers rather than investors. Their debt is modest. They accumulate retirement savings in IRAs and 401k accounts. Some hold other financial assets, such as CDs and stocks. But this class's largest single asset is likely to be the home they live in. Since net worth tends to rise with age, families in this class are, on average, older than those in the first class.
(3) The Investor Class. The top 10% of households. The households in the investor class own most of the privately held investment assets and typically control portfolios of stocks, mutual funds, and bonds. Many members of this class have interests in small businesses, professional practices, and commercial real estate. Many own second homes. On the other hand, equity in homes contributes a modest proportion of their net worth. This class is relatively free of debt. Although it controls most of the total of gross assets owned by households, it is responsible for a small proportion of total liabilities.